Applying for a mortgage? Prepare for the third degree
Applying for a mortgage can now involve lengthy and intrusive questioning – and you’re still far from guaranteed a loan
Rupert Jones and Hilary Osborne
guardian.co.uk, Friday 1 June 2012 23.58 BST
When Jessica Hunt and her partner, Matthew Hayes, applied for a mortgage, they didn’t expect more than four hours of questioning, during which every aspect of their spending habits was put under scrutiny. But that’s what happened when they found themselves in their local HSBC in north London.
“For the amount we wanted, HSBC was offering the best interest rate,” says Hunt. “I went into the branch to find out if we were eligible and spent an hour talking to the first person there.”
Hunt, a teacher, arranged to come back with Hayes, a firefighter, to meet a mortgage adviser. “We went back with the relevant paperwork thinking we could get it done,” she says. “He kept us in his little office for about two hours, asking questions, putting things into the computer, but then we realised we’d failed to bring one of our bank statements.” So they had to go back, this time to an appointment that lasted an hour-and-a-half.
“He unpicked everything we had spent on our separate and joint accounts. Once he had done that, he spent at least 45 minutes going through different scenarios, looking at our statements and saying would I still buy this if Matthew was dead, would Matthew still want Sky TV if I died.” In one scenario the couple say they were asked if they would still go out for meals if Hayes lost an arm. Hunt felt the questions were upsetting and seemed over the top for people who had a reasonable deposit and had owned properties before.
After all that, their mortgage application was turned down. “The following day we went into Nationwide and answered all the questions they needed in about an hour, and were offered a loan.”
HSBC told us: “As a responsible lender we have always discussed the implications of changing lifestyle circumstances with our customers when they apply for a mortgage and how these could affect their ability to repay the loan.
“As part of our responsibilities to treat customers fairly, we do discuss with them how they or their family would be affected in event of death, critical illness, accident or sickness and unemployment, to ensure we not only help customers by providing a mortgage against their property, but also ensure they are able to stay in their home should the unexpected happen.”
Hunt and her partner are not alone in being subjected to what they felt was excessively lengthy, intrusive questioning. A few days ago, Guardian Money received an email from a self-employed journalist who is applying for a mortgage with the subsidiary of a building society. He told us that the level to which the company is now delving into his personal details “has gone beyond a joke”. He has had to prove he has a £2,000 overdraft, and is now being quizzed about the fact he received rent for a property he owns via cash payments into his bank account, rather than directly from the tenant’s account.
Broker SPF Private Clients says that a standard mortgage application should not take more than an hour. But a warning has been issued that, for many borrowers, long grillings and lots of personal questions look like increasingly becoming the norm.
In a speech last month, the outgoing chairman of the Building Societies Association warned that one unintended consequence of the Financial Services Authority’s ongoing shake-up of the home loans market could be that “swaths” of the population find it much harder to get a mortgage.
Peter Griffiths said that once the FSA’s “mortgage market review” – announced in 2009 and still going on – has finished, “the mortgage application process will change, with both lenders and consumers having to get used to far more detailed, and some may believe intrusive, questioning.
“The process is also likely to take substantially longer … The hoops lenders will have to get consumers to jump through are getting higher – in fact, not just high, but in some instances flaming. A consumer backlash could well follow”.
The impact of the review is already being felt. Santander’s lending arm for brokers, Abbey for Intermediaries, introduced strict new affordability checks in February. While few were surprised it was inquiring about would-be borrowers’ regular outgoings, some were concerned to learn that the company was probing into areas such as how much people spend on birthdays, Christmas and magazine subscriptions.
The implication was that splashing out on a decent birthday present for your partner or having the family over for Christmas lunch could affect your chances of getting a mortgage. Santander said that the changes would enable it to collect more information upfront about borrowers’ spending and make it easier for brokers to provide all this information when submitting cases.
The FSA, after coming out all guns blazing in 2009, has arguably toned down its language lately and made it clear that lenders “do not have to consider in detail what borrowers spend”, as long as they don’t ignore unavoidable bills. But it seems some companies have decided to play it extra-cautious.
Meanwhile, brokers say borrowers need to be aware that some questions are more about the banks trying to flog products such as protection insurance.
“The overall theme is that more lenders are asking for greater detail about your monthly commitments,” says David Hollingworth at broker London & Country. “You have to expect that, but have to be aware that the conversation, particularly in a branch, may turn into a cross-selling of other products, and that’s where you should be thinking ‘I need to shop around’.” .
Mark Harris, chief executive of SPF Private Clients, says: “If you use a broker, they will handle the paperwork and make the process easier. Make sure you come prepared, particularly with employee benefit details, bank statements, pay slips, P60, ID and proof of address to make things move a little smoother.”As you might perhaps expect, he says mortgage advisers at banks “tend to be young, with no experience or discretion, so they run through everything line by line, which in certain circumstances may be seen as a good thing, but often many questions are irrelevant and simply ways for the bank to try and cross-sell their products.”